Everyone I know keeps on asking me why I'm renting an apartment instead of buying a house or condo. Some even go as far as to say I'm stupid for throwing money away on rent. I think I'd like to share my rationale on the subject.
The way I see it, it makes more financial sense for me to rent than it does for me to buy something. First of all, when I do buy, I won't be buying something for the sake of buying. I intend to buy a place that I wouldn't mind living in for a good portion of my life. I'm not going to buy some crappy condo for my first home. It's going to be a nice place that has the furnishings and amenities that I want. Perhaps, I'll buy a house first. I haven't ruled that out. I suppose it depends on if I'm still single when I decide to take that leap into homeownership (and there's a high probability I will still be single, so most likely I'll just go for the condo).
I see and hear stories about people buying these houses that they can't really afford. They take out these huge mortgages and end up paying close to $2,000/month on them. That's a lot of money to be paying on just mortgage alone. It really doesn't leave a lot of room to save any money (outside of a 401k). Moreover, you end up spending so much money on the mortgage that you can't afford to go out and buy nice things for yourself or for the house at a moment's notice.
Right now, I pay almost $1,000/month on my little apartment. That's pretty standard for this area. I still have a student loan and a car loan to pay off. Despite these expenses, I live pretty darn comfortably. I can afford to buy pretty much whatever I want (within reason), when I want. If I want a new watch, I can go out and get one. A few months ago, my computer crashed, and I needed to buy a new one. I simply went online and ordered myself a fairly high performance laptop, and I didn't even have to dip into my savings account. When I went to Miami, I paid for my airfare, hotel, and spending money without touching my savings account. That's not to say I frequently make big purchases. I'm just saying that whenever something comes up or something catches my eye, I don't have to stop and worry if I'll have enough money. Oh yeah... Despite what I spend on rent, student loans (I make 3 times the minimum payment every month), my car loan, utilities, and whatever money I need for gas and groceries, I still manage to put about $2,000/month into my savings account.
What I'm trying to say is that I live a pretty comfortable life, and while I may be "throwing away" money by renting, I still manage to save a pretty good amount. My plan is that I when I have a good enough chunk of change saved up, I'll put a pretty large down payment on a place. It'll hopefully be enough so that my monthly mortgage payment is no more than $1,200. I just feel like this is the financial plan that makes the most sense to me for my situation. It doesn't apply to everyone. It just works for me.
Let me put it this way: Let's say I went and bought a condo tomorrow. I don't have a whole lot of money in savings right now, so I wouldn't be able to afford a big downpayment. Therefore, I'd have a pretty high mortgage probably in the neighborhood of $1,600-1,700/month. Since I'm sure that whatever place I get would be bigger than my current apartment, my utility bills would go up. Now, all of a sudden I can't put away that $2,000/month like I do. Right now, the housing market isn't exactly booming, so who knows how much that condo will appreciate a few years down the road. Let's just say, for shits and giggles, that its value increases by $50,000 5 years from now (I can't imagine that being likely). I sell that condo and make a nice $50,000 profit on it. Sounds good, right?
Well, let's take a closer look. At my current rate of saving, I can save $120,000 in 5 years. Therefore, if I stayed in my apartment, at the end of 5 years, I'd have $120,000 in my savings account. If I bought a condo and sold it for a $50,000 profit 5 years down the road, but since I was spending more on mortage I could only save half the amount of money (a generous estimate) I used to, I'd end up with $110,000 in my savings account after 5 years.
From that analysis in which I most likely overestimated the appreciation of the condo and my ability to save money while paying a high mortgage, after 5 years I'd have more money if I rented than if I bought. Moreover, having a substantially higher mortage payment than my current rent payment, I'd have to change my lifestyle a little bit and sacrifice some of my bigger expenses. Sure, I'd catch a tax break from being a homeowner, but even factoring that in, I can't see how it would make more sense to buy.
Like I said, I'll stay in this apartment until I have enough money to make a down payment that will cause my monthly mortage payment to be reasonably close to my current rent payment. By that time (2 or 3 more years) my student and car loans will be pretty close to paid off. That means that I'll be able to have the same kind of lifestyle I do now (as far as leisurely spending), but I'll also be able to save plenty of money for retirement (in addition to my 401k) or for my kids' college (if I ever get married and have kids). That's not to mention the equity I would have if my home appreciated.
Once again... This reasoning can't be applied to everyone. For one, it doesn't make any sense at all for someone making much less money than I do. If a rent payment is too high for you to put any money into savings, then you're better off buying a low cost place that will appreciate over time. In that way, you'd still be paying roughly the same amount in mortgage as in rent, but you'll at least have some equity from the appreciated home. Being married or engaged also changes the way you have to look at things. I know that if I were married or about to be married, I'd be looking into buying now.
As a single guy with no marriage prospects on the near horizon and making pretty decent money, it seems to just make a lot more sense to me to rent.
(I feel like printing off copies of this and handing them out to everyone who asks me about this. I seriously get asked this way too often.)